## Facts

- Abbotts Dairies and related entities filed Chapter 11 after severe financial distress and lender pressure to reduce credit.
- On the petition date, Abbotts sought approval of (1) an interim agreement letting ADC, Inc. effectively assume operations and (2) a 11 U.S.C. § 363(b) agreement to sell substantially all assets to ADC.
- The bankruptcy court held an emergency hearing on the interim agreement with notice only to two secured creditors.
- Abbotts’ CEO testified Abbotts would shut down without immediate approval; on cross-examination he admitted ADC offered him post-sale employment contingent on approval of the interim and purchase agreements.
- The bankruptcy court approved the interim agreement, and later approved the § 363 sale to ADC over objections by creditors NFO and Cumberland.
- Objecting creditors argued the interim arrangement chilled bidding and that the proposed price did not reflect fair market value; the bankruptcy court refused to hear proffered evidence on collusion and bid chilling.
- The bankruptcy court found the price “fair and reasonable” but made no explicit finding that ADC was a “good faith” purchaser.
- The sale closed; objecting creditors did not obtain a stay pending appeal.
- The district court dismissed the appeals as moot under § 363(m) due to consummation of the sale and lack of a stay.

## Issues

1. Whether § 363(m) rendered the appeals moot when the sale closed without a stay but the bankruptcy court made no explicit good-faith finding.
2. Whether a bankruptcy court must make an explicit “good faith purchaser” finding for § 363(m) protection to apply.
3. Whether the bankruptcy court erred by refusing to hear evidence relevant to purchaser good faith and whether the sale reflected true value.

## Decision

- The Third Circuit reversed the district court’s mootness dismissal and remanded.
- A finding of purchaser good faith is a prerequisite to § 363(m) protection, and the trial court should make an explicit good-faith determination.
- Because the bankruptcy court made no good-faith finding and excluded evidence bearing on good faith and value, § 363(m) could not be applied to bar appellate review based solely on consummation of the sale.
- The case was remanded for proceedings including an evidentiary inquiry into good faith and the integrity of the sale process and price.

## Legal Principles

- § 363(m) protects an unstayed consummated sale only if the purchaser bought in good faith and for value.
- “Good faith” in bankruptcy sales requires the absence of fraud, collusion, or attempts to obtain a grossly unfair advantage over other bidders or creditors.
- An auction process may support a finding of value, but it does not establish value if the process is tainted by collusion or chilled bidding.
- Appellate courts cannot treat a closed sale as insulated under § 363(m) without a factual basis and explicit trial-court determination of good faith.

## Conclusion

The Third Circuit held that § 363(m) mootness depends on a purchaser’s good faith, requiring explicit findings supported by a fair evidentiary record; where allegations of insider conflict and bid chilling were not heard and no good-faith finding was made, dismissal as moot was improper and remand was required.


In re Abbotts Dairies of Pa., Inc., 788 F.2d 143 (3d Cir. 1986)